Monday, September 12, 2011

Passport Series: Lebanon: Part 2: Microfinance

This month’s Passport Series focuses on Lebanon! Lebanon is a country with stunning mountain scenery, a beautiful Mediterranean climate, and a highly diverse population. Follow us throughout the month of September as we learn about Lebanon’s background, its microfinance sector, and Kiva’s presence within its borders.

Microfinance in Lebanon

Lebanese bakery owner and Kiva borrower

While the microfinance sector in Lebanon is growing, it is still relatively small in respect to the unmet need throughout the country. According to a 2009 World Bank study Lebanon’s net micro-loan portfolio of approximately USD 50 million serves about 38,000 to 55,700 active borrowers, which is well short of the estimated 190,000 potential borrowers in the country and a potential USD 200 million market.1 There are three major microfinance institutions (MFIs) in Lebanon currently reporting to Microfinance Information Exchange (MIX) with a combined loan portfolio of about USD 32.5 million and about 37,000 active borrowers. Two of these MFIs, Ameen s.a.l. and Al Majmoua are currently Kiva Field Partners, and their information (as reported to MIX) is represented below.

Microfinance Information Exchange (MIX)

Microfinance Information Exchange (MIX)

Islamic Banking (Shariah-Compliant Banking) and Microfinance

The term “Islamic banking” refers to a system of banking or banking activity that is consistent with Islamic principles (shariah) and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly referred to as Riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or Haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values).2 While shariah principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.3

Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. Because Islam forbids simply lending out money at interest, Islamic rules on transactions (known as Fiqh al-Muamalat) have been created to avoid this problem. The basic technique to avoid charging interest is the sharing of profit and loss, via terms such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar). These financial transaction terms are defined here in greater detail.

Shariah-compliant assets reached about $400 billion throughout the world in 2009, according to Standard and Poor’s Ratings Services, and the potential market is $4 trillion.4 Iran, Saudi Arabia and Malaysia make up the largest share of shariah-compliant assets while Lebanon is considerably smaller in comparison.5

In addition to following the Islamic rules on transactions, practitioners of Islamic lending are encouraged by the Islamic scholars who sit on their advisory boards to fund socially productive activities, as well as allocate a portion of their profits to support charitable projects. This has led many Islamic Financial Institutions (IFIs) to promote shariah-compliant microfinance products to low-income populations.6 Microfinance is ideologically compatible with Islamic finance, capable of Shariah-compliancy, and possesses a sizeable potential market. The use of interest found in conventional microfinance products and services can easily be avoided by creating microfinance hybrids delivered on the basis of the Islamic contracts of Mudharabah, Musharakah, and murabahah.

While shariah-compliant products have not spread widely into the microfinance sector in Lebanon there are several banking institutions that are offering Islamic banking options to their clients, including the Lebanese Islamic Bank and Blom Bank.

Kiva Field Partners in Lebanon

As stated earlier, Kiva works with two Field Partner MFIs in Lebanon. You can read more about how Kiva chooses field partners on our blog in our latest webinar from JD Bergeron, Senior Director of Social Performance. These two MFIs have met the rigorous criteria of becoming a Kiva partner, and each offers services to meet the needs of specific vulnerable populations.

Ameen s.a.l. has been a major player in the Lebanese Microfinance sector since 1999. Originally, a micro-credit program created by CHF International, Ameen evolved to become Ameen s.a.l. in 2003, a Lebanese services company. In 2007, Ameen s.a.l. registered with the Central Bank of Lebanon to become the first Lebanese financial institution specializing in Microfinance. Ameen s.a.l. services its clients across Lebanon both directly as well as in partnership with banks.

One of the reasons Kiva chose to partner with Ameen s.a.l. is because of their ability to create innovative products for their clients. They offer Business loans, Consumer loans, Housing loans, Information and Communication Technology (ICT) loans and Kiva loans. Ameen s.a.l. also maintains partnerships with four of the main commercial banks in Lebanon. Through these partnerships, they provide the banks with expertise in appraising microentrepreneurs for loans, and in return the banks put forth the capital (either all or 50% of it) for the loan disbursal. Over 70% of these shared-risk loans are administered in this way, and their partnership allows the banks to experiment with micro-lending and learn key appraisal methodologies.

Al Majmoua was established in 1994 by Save the Children–USA as a program with a mandate to provide sustainable financial services to low-income women micro-entrepreneurs in urban and rural areas of Lebanon. In 1998, the program spun off from Save the Children to become an independent local NGO. Al Majmoua is active across Lebanon, including the Palestinian Camps, through a network of 15 offices. The branches allow Al Majmoua to be present in the communities it serves and remain tuned in to the particular needs of the micro-entrepreneurs.

Lebanese farmer and Kiva borrower

Al Majmoua views development in a holistic light. Micro-credit alone may not be sufficient to sustain a small business. Nonfinancial services, particularly Business Development Services, play a complementary role in improving the quality of life of the most vulnerable, especially women entrepreneurs. Al Majmoua provides business management and financial education trainings, vocational trainings, individual diagnosis, marketing support, networking, exchange of experience, and awareness sessions including women's economic rights, self-confidence, communication skills, and household budget management. These free-of-charge nonfinancial services are offered to both borrowers and non-borrowers after a thorough individual needs appraisal based on a voluntary approach and the identification of either opportunity for development or business weaknesses.

Al Majmoua is also a clear leader in the social performance space in Lebanon. Since 2009, they have been collaborating with other members of the Sanabel Network to implement the QAT Social Performance assessment framework. They are also participating in numerous task forces that help them define their social goals and put into place the systems and processes in order to better meet them.

Kiva is proud to be a part of helping you fund loans in Lebanon! Next time you loan to an entrepreneur, consider lending to a small business owner in Lebanon!

Stay tuned for our final post next week highlighting more about the lives of our borrowers in Lebanon.


2. Mervyn K. Lewis, Latifa M. Algaoud: Islamic Banking Cheltenham, 2001

3. Rammal, H. G. and Zurbruegg, R. (2007). Awareness of Islamic Banking Products Among Muslims: The Case of Australia. Journal of Financial Services Marketing, 12(1), 65-74.